As someone who lacks patience, playing chess is a great exercise. The game forces me to look forward several moves, trying to imagine what my opponent will do. I’ll craft a complicated trap that unfolds over time—as often as not, the plan and the trap will change as we trade pieces. But as long as I continue to evaluate my options and stay focused on my goal, I have a chance that things will work out to my advantage.
Investing is similar. We can use all the research and forethought we have, and we can have the best processes and strategy in place. But sometimes, the unexpected happens. Just like an opponent in chess might make a move I didn’t consider, causing me to reevaluate what I am doing, things change in the markets and we have to consider the impact of that new information on our existing investments. Sometimes our plans will change because of this new information, but being patient and letting things unfold naturally is often the better course.
This is essentially what happened with Nvidia. If you are unfamiliar with the company, they are the premier global manufacturer of graphics processors, and their semiconductor chipsets are found in the fastest computers running the most powerful applications. Years ago, we bought the company because of the quality of their products, and because they were involved in several emerging technologies.
Last year, the company had a bit of a setback. As cryptocurrencies declined, so did Nvidia’s stock, because their processors are used by cryptocurrency miners. This was particularly frustrating for us because we didn’t buy the company for its connection to crypto. And just like I have had to consider sacrificing a good piece in chess, hoping it’ll improve my overall position on the board, we gave thought to selling this good company because of the negative sentiment around crypto, hoping it might improve the overall portfolio.
I’m glad we were patient with the company. As it happens, Nvidia’s chipsets are also favored in computers running artificial intelligence (AI). As that segment of the technology marketplace has taken off this year, so has Nvidia’s stock returned to favor among investors. This isn’t to say that all of our decisions work out this way or this well. We can’t control the markets and sometimes things don’t work out the way we expect them to. But as long as we focus on the things that matter—buying companies with sustainable competitive advantages—and then have the patience to allow our companies to develop through tough situations, we are in the best position to have things work out to our advantage.
~ Steve Davenport, CFA